Images of empty supermarket shelves whether in Manhattan, Manchester, Munich or Milan have become disturbingly familiar. For shoppers, it’s clearly much more frustrating if they are unable to purchase the most basic of consumer staples. And forget about online deliveries in many cities: good luck if you can even get a slot, let alone a guarantee it will come when you expect it to, with all the items you had intended.
So what’s going on? We recently had a conference call with a consultant and former employee of Amazon specialising in logistics. He furnished us with us some useful perspectives. The biggest problem facing retailers globally is that the arrival of COVID-19 has challenged the default ‘just-in-time’ operating model that has been increasingly deployed. Synchronised supply chains have been undermined. Panic buying has led to capacity constraints. Think about it like this: distribution centres are running low on stock because retailers are ordering more into their stores. And since they can’t transport it to supermarkets quickly enough, there is no spare stock in distribution centres.
Efficient supply chains are all well and good, but they are not what experts call ‘responsive.’ While they can deal with one-off incidents such as earthquakes, a prolonged crisis (compounded by lockdowns) is a much larger challenge. The issue is less one of there not being enough goods available; more one of having the capacity to get them delivered appropriately.
Anecdotally, sales of toilet paper and dried pasta have both risen more than 50% year-on-year in the UK during March. Some supermarkets have responded by closing fresh meat and fish counters in order to free up resource (i.e. its delivery network and staff) for more essential products. This, however, is just a short-term response. Longer-term, the new paradigm – already being explored by Amazon in the US – is to build ‘mothership’ fulfilment centres. These massive buildings – 3m square feet in size – would then supply much smaller and more localised centres, which in turn, would deliver direct to supermarkets. Such developments clearly play into the hands not only of players with scale but also owners of strategic industrial real estate. As we were told, “speed [of delivery] is important, but what customers want is certainty.”
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